Central bank to control ‘hot money’

‘VOLATILE MOVEMENTS’:Recent appreciation of the NT dollar suggests overseas investors may be speculating on foreign exchange, rather than investing in shares

By Amy Su / Staff reporter

The central bank will tighten its control over the movement of hot money in an effort to protect the nation’s economy and financial system from “excessive volatility,” a central bank official said yesterday.

The New Taiwan dollar has risen 0.68 percent over the past month to close at NT$29.28 yesterday, raising concerns that the local currency is being boosted by foreign investors using their capital to speculate on the foreign exchange market, rather than buying local stocks.

“The bank always closely monitors capital inflows from foreign investors,” Lin Sun-yuan (林孫源), the director-general of the central bank’s department of foreign exchange, told a media briefing. “Basically, we call them to show our concern, when investors park their money [in a local currency account] for a week or longer.”

Most of the investors called have promised to invest in the stock market or to remove the money immediately, Lin said, adding that only a few investors have been called so far.

The bank’s view is in line with a speech given by central bank Governor Perng Fai-nan (彭淮南) at the annual board meeting of the Asian Development Bank (ADB) yesterday.

Perng said global speculative money has been starting to flow into emerging Asian economies this year, with short-term “hot money” interfering with stock markets and currency rates in these nations.

“Facing volatile movements of global capital, Asian countries should prepare well to cope with the external impact,” Perng said.

Perng also again protested the change of Taiwan’s name on the membership list of the ADB.

The ADB changed Taiwan’s designation from the Republic of China to “Taipei, China” in 1986, when China was admitted to the organization.

In related news, the nation’s foreign exchange reserves totaled US$395.07 billion as of the end of last month, an increase of US$1.2 billion from a month earlier, the central bank said in a report yesterday.

“The major factor responsible for the increase last month was returns from foreign exchange reserves management and investment,” Lin said.

The market value of securities investment and NT dollar deposits held by foreign portfolio investors reached US$212.2 billion at the end of last month, equivalent to 54 percent of foreign exchange reserves, evidence of Lin’s view that most foreign investors still chose to invest on the stock market.

Taiwan maintained its position as the country with the world’s fourth-largest foreign exchange reserves, behind China, Japan and Russia, statistics showed.